Call for reduced GST on MICE business

The Federation of Indian Export Organizations (FIEO) has called for online-30-day approval for all foreign direct investments relating to technology transfer and niche technology.

The call was made during Pre-Budget discussions with Finance Minister Nirmala Sitharaman, said FIEO in a release on 11 June 2019.

FIEO has pointed out that startups from many countries are offering equity participation to the Indian IT companies

But the equity participation by Indian ITs is covered by overseas direct investment or outward FDI (ODI) which is having onerous procedure besides regular reporting.

Since such equity participation by Indian IT companies help them to build their own brands and expand in such markets, such ODI may be made simpler with very little reporting up to US$50,000.

The startups equities offer replaces the payment of about US$40,000-$50,000.

The Fieo also wants linkage between FDI and tariff policy.

The Federation has also made suggestion on productivity.

Instead of merging few small units into large-one, one can explore the possibility of value chain production wherein some of the units make parts and components, some make the final product and some make accessories for the same product.

Such manufacturing should be preferred in a close geographical area so that the supply chain is integrated with minimal logistics cost, suggested the FIEO.

Other alternative could be to make or upgrade clusters so as to provide common facilities like tool rooms, testing facility, certification facility all under one roof for units producing same or similar goods so that the operational costs are minimised.

It has highlighted the Health sector as one of the fastest growing service sectors which still faces huge mismatch between the demand and supply.

“We require close to 3 million beds to reach the target of 3 beds per 1,000 people by 2025. We require about 1.5 million doctors and 2.5 million nurses to meet the growing demand of the sector,” FIEO has pointed out.

The FIEO wants GST rates for meeting, incentives, conference and exhibition (MICE) business to be lowered to 18-12%.

It has pointed out that MICE is shifting from India to Sri Lanka, Singapore and Thailand due to high GST rate of 28% as such facility are generally in large hotel having room tariff of over Rs.7,500 per day.

The Government should also consider to provide exemption from GST on mode 2 of services which is treated as exports in the Foreign Trade Policy but not under taxation Policy.

On sales to foreign Tourist, the FIEO appreciated that it will give fillip to tourism besides helping exports of handicrafts, non-precious jewellery, carpets, ayush and herbal products, beauty products etc.

This is come through yet to be operationalised refund of GST at the airport as envisaged under IGST Act.

The Federation has pointed out that the reduction in tariff protection will increase efficiency with rising competition but at the same time an honest assessment has to be made as to whether the industry would be able to sustain with such reduction in tariff particularly when inverted duty structure remains a challenge.

Tariff reduction would also take away some sheen out of the strategy through which “we allure our tariff partner to provide us more market access”.

This also hits at FDI inflows as with reduced tariff companies may not be eager to set their base in India and continue to supply the products from overseas manufacturing facility taking advantage of low or moderate duty, said FIEO.

It also called for a review of Tax Deductions on Product Development & R&D.

Section 35 (2AB) of Income Tax Act may be relooked into to so as to provide tax deduction not only on R&D but also on product development as product development is key in exports and should be encouraged.

The tax deduction on R&D expenditure which has come down from 200% to 100% now may be restored to its original position as R&D investment in India is extremely low (1% of GDP) and most of the R&D is being done at the behest of the Government or in sectors like pharma where it is Hobson’s choice.

The corporate tax, reduced to 25% in 2015 for businesses having turnover up to Rs.250 crore, may be extended to all entities particularly as it will attract FDI. Also noteworthy is the fact that US has reduced corporate tax from 35% to 21% in 2018, said FIEO. fiinews.com